http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

PETITIONER: COMMISSIONER OF INCOME-TAX, MADRAS

       Vs.

RESPONDENT: RN.  AR.  AR.  VEERAPPA CHETTIAR

DATE OF JUDGMENT: 04/12/1969

BENCH:

ACT: Income  Tax Hindu Undivided Family- Estate duty paid out  of joint family estate-Levy of duty held illegal-Refunded  with interest-On partition a share in the interest if  assessable to tax.

HEADNOTE: The  revenue  authorities in Ceylon levied  estate  duty  in respect of the estate of A and his son in the hands of their three  widows.  The Judicial Committee of the Privy  Council set  aside  the levy and in 1957 the  Government  of  Ceylon deposited in Court the duty which was levied, with interest. On  February  17, 1947, the joint family estate  was  parti- tioned  among the three widows and their adopted sons.   The Income-tax  Officer brought to tax one of the adopted  son’s share of the interest received from the Ceylon Government on the estate duty.  The Tribunal reversed the assessment order holding that the amount of interest received by the assessee was of a capital nature and was on that account not  liable’ to  tax. on a reference- the High Court was of  the  opinion that  the assessee’s share in the interest  attributable  to the period ending February 17, 1947 was not taxable but  the share  attributable to the period between that date and  the date  of payment by the Ceylon Government was  taxable.   In the  view of the High Court the amounts paid as estate  duty had  to be deemed in law to have come from the joint  family estate  and  on  severance of the  joint  family  status  in February  1947  each adopted son received his share  in  the estate then existing as capital. The  Commissioner appealed to this Court.  It was  contended that  the  character of the receipt which was  revenue  when received  by the joint family could not be altered  when  it was  divided  between  the  members  of  the  joint  family. Dismissing the appeal, HELD  :  On the severance of the joint status  the  assessee became  entitled  to  a ’share in the  family  estate.   The amount  of interest on the state duty accrued as  income  to the  joint family but it was income of the joint family  and not of the individual members.  But when a share out of  the estate  which  included  the interest  on  estate  duty  was received by the assessee it had not the character of income. Once the income was received by the joint family, the amount lost its character of income : it became merged in the joint family  estate  and became the capital of  the  amity.   The share received by the assessee was therefore a share in  the capital  of the family.  Therefore, the share in  the  joint family  property which included interest on the estate  duty which accrued prior to February 17, 1947 was rightly held by the  High  Court  to be not of the  nature  of  revenue  and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

accordingly not taxable. [310 C-E] RM.  AR.  RM.  AR.  Ramananthan Chettiar v. Commissioner  of Incometax Madras, 63 I.T.R. 458, distinguished. [The Court did not express any opinion on the correctness of the finding of the High Court that the interest accrued  due after  February 17, 1947 must be regarded as income  to  the extent of the share of each of the members of the family.]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2315 of 1966. Appeal from the judgment and order, dated August 25, 1965 of the Madras High Court in Tax Case No. 216 of 1962 (Reference No. 121 of 1962). Sukumar Mitra and R. N. Sachthey, for the appellant. T. A. Ramachandran, for the respondent. The Judgment of -the Court was delivered by Shah,  J.  Arunachallam Chettiar-whom  will  hereinafter  be called "A Senior" had three wives-Valami Achi, Lakshmi  Achi and Nachiar Achi.  By Valami Achi he had a son who was  also called Arunachallam-We will call him "A.  Junior".  A Junior married  Umayal Achi.  A Senior, A. Junior and the wives  of the  two members formed a joint Hindu family,  possessing  a large estate in Ceylon.  A. Junior died on July, 9, 1934.  A Senior  died on February 1 23, 1.938, leaving heirs  running his  two wives Lakshmi Achi and Nachiar Achi and  his  son’s widow Umayal Achi.  The Revenue authorities in Ceylon levied Rs.  221.743 as estate duty in respect of the estate  of  A. Junior  and Rs. 6,33,601.76 in respect of the estate  of  A. Senior.  The levy was challenged by the three widows and the dispute  was carried to the Judicial Committee of the  Privy Council.  The Board set aside the entire levy.  In 1957  the Government  of Ceylon deposited in Court the duty which  was levied  together with Rs. 7,97,072 as interest due from  the date on which the estate duty was collected. After  the death of A. Senior, there were  disputes  between the  three  widows Lakshman Achi, Nachiar Achi  and  Uniayal Achi, and -each widow adopted a son to her deceased husband. A suit for, partition of the joint family property was  then filed  in the Civil Court at Deokotai.  Under  a  settlement reached  on February 17, 1949 between the three  widows  and the adopted son of A. Junior (whom we will hereinafter  call the  assessee)  was held entitled, to 5/24th  share  in  the estate. This  appeal relates to the liability to income-tax  on  the share -of the assessee in the amount of interest paid on the estate  duty  which was refunded by  the  Ceylon  Government after  the Judicial, Committee set aside the  order  levying the estate duty. The  Income-Tax  officer,  karaikudi  brought  to  tax  the, ’assessees  share of the amount interest received  from  the Ceylon  Government  on  the  estate  duty.   The  Income-tax Officer  rejected the, contention of the assessee  that  the receipt  was of a capital nature,: and that in any  case  it was a casual receipt and on that account 309 exempt  from tax under S. 4(3) (vii) of the Income-tax  Act, 1922The  order  was  confirmed by  the  Appellate  Assistant Commissioner.   The Income-tax Appellate Tribunal,  however, reversed  the  order  holding that the  amount  of  interest received by the assessee was of a capital nature and was  on that account not liable to tax. The  Tribunal  referred the following question to  the  High Court of Madras under s. 66(1) of the Income-tax Act, 1922

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

"Whether  the  sum of Rs. 1,20,830 or Any  part  thereof  is assessable to tax ?" The High Court was of the opinion that the assessee’s  share in  the interest attributable to the period ending  February 17, 1947 was not taxable, but the ’share attributable to the period  between  that date and the date of  payment  by  the Ceylon Government was taxable.  Against that decision,  with certificate  granted by the High Court the  Commissioner  of Income-tax has appealed to this Court.  The assessee has not appealed against the opinion insofar as it was held that the receipt  to  the  extent to which it  related  to  a  period subsequent to February 17, 1947 is taxable.  In the view of. the  High  Court  the amounts paid as estate  duty  must  be deemed in law to have come from the joint family, estate and on  severance of the joint family status,in February,  1947, each  adopted  son  received his share in  the  estate  then existing  as  capital.  Counsel for the  Revenue  countended that  the  High Court erred in holding that  the  assessee’s share  in  the amount of interest received from  the  Ceylon Government Was of the nature of capital.  Counsel  submitted that  the  character of the receipt which was  revenue  when received  by the joint family, could not be altered when  it was divided between the members of the family.  Counsel also contended  that  this Court has held that the share  in  the amount  of  interest  on estate duty  received  by  the  son adopted  by Nachiar Achi was liable to be taxed  as  income: RM.   AR.   AR.   RM.   AR.   AR.  Ramanathan  Chettiar   v. Commissioner of Income-tax Madras(’) . But that case has  no relevance  here. for the only argument advanced  before  the Tribunal  and  the  High Court in that case  was.  that  the receipt was of a casual,and non-recurring nature and was  on that  account  exempt from tax under s. 4(3)  (vii)  of  the Income-tax  Act.  This Court negatived the contention.   The Court declined to consider the argument advanced at the  Bar that  the share allotted to the adopted son of Nachiar  Achi being  a share in the estate of A. Senior was of the  nature of  capital, because the question did not arise out  of  the order made by the Income-tax Appellate Tribunal and was  not made  the subject-matter of ’lie reference.  In RM. AR.  AR. RM.  AR.  AR.  Ramanathan (1) 63.  T.T.R. 458. L7Sup.CI.(NP)70-5 310 Chettiar’s case(1) the question argued before the High Court in this case was not raised before the income-tax  Appellate Tribunal and was not decided. After  the death of A. Senior the property was held  by  the three  widows  as  members of the  Hindu  Undevided  family. Under  the  Hindu Law it is not predicted of a  Hindu  Joint family that there must be a male member in existence.   Even after  the  death of the sole male member, so  long  as  the property  which  was originally of the  Joint  Hindu  family remains  in  the hands of the widows of the members  of  the family  and  is  not divided among them,  the  joint  family continues.   Payment of the estate duty was  doubtless  made out of the joint family fund and the interest which  accrued due,  also acquired the character of joint  family  property when received.  The joint family status came to an end  only on February 17, 1947.  On the severance of the joint  status the  assessee  became  entitled to a  share  in  the  family estate.   The amount of interest on the estate duty  accrued as income to the joint family but it was income of the joint family and not of the individual members.  But when a  share out of the estate which included the interest on estate duty was  received  by the assessee it had not the  character  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

income.  Once the. income was received by the joint  family, the amount lost its character of income: it became merged in the  joint  family  assets and became the  capital  ’Of  the family.  The share received by the assessee was therefore  a share in the capital of the family.  The share in the  joint family  property which included interest on the estate  duty which accrued prior to February 17, 1947 was rightly held by the  High  Court  to be not of the  nature  of  revenue  and accordingly not taxable. We  express no opinion on the correctness of the finding  of the High Court that the interest accrued due after  February 17,  1947, must be regarded as income to the extent  of  the share of each of the members of the family. The  appeal fails and is dismissed with costs. R.K.P.S.                    Appeal dismissed. (1) 63 I.T.R. 459. 311